A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

December 20, 2005

Couldn't agree more here with Gary Kaltbaum at Fox News. Especially that the hottest will now become the coldest. It's called gravitating toward the mean...Here's his take:

* When websites open up to help you flip condos, it is a sign of being late in the game* When colleges start teaching you how to flip condos, it is a sign of being late in the game* When your best buddy quits his job of twenty years to become a mortgage or real estate broker, it is a sign of being late in the game.

I am in no way saying the end of the world is coming. I am just saying that we are going to see a pretty decent dip in prices over the next couple of years...and maybe worse. My simple motto is "do not be the last one in!" The biggest losses will come from the hottest areas. That's how it always works.

29 comments:

If everyone is doing it it must be right? RIGHT? Wrong. When everyone thinks there is free, easy money that is a sign that something is fundamentally wrong in the market. Do the opposite of the masses and mint money.

I'd be surprised if housing bumps around in the positive range for the next couple months before going negative. I think the real numbers are negative already and the realtor groups and their cronies are in too deep to admit it.

I was reading Ed Yardeni's economic forgast at Smartmoney.com earlier- he predicts a strong economy in 2006- with the Market (stocks up) Saw at business week at MSNBC today that said it would be a wonderful year for the stock market and the economy. Excuse me, but is there some disconect here?How can this possibly be? Sad that Mr Yardeni says

arket Targets for 2006S&P 500: 1410Dow: 12000Federal-Funds Rate: 5.0%U.S. 10-year Treasury: 5.0% by spring and back down to 4.5% by year's end

2006 OutlookThere's no need to fret about next year, says Ed Yardeni. Similar to his outlook for 2005, he anticipates benign inflation, impressive economic growth in the U.S. and abroad, strength in corporate earnings and solid stock-market returns.

Oak Associates' chief investment strategist expects the economy will expand at a rate of 3.5% next year and inflation will remain tame at around 2%. "With inflation at 2% the Fed will be hard-pressed to explain why it's raising interest rates over the next few meetings," he says. Yardeni puts the federal-funds rate at 5.0% by May, vs. 4.25% now.

What's driving his rosy outlook? Productivity. For the past 10 years productivity has increased at an annual pace of 3%, a trend Yardeni expects to continue over the next 12 months. At that rate, productivity will keep inflation low, profit margins high and drive the standard of living higher as workers' compensation increases. Indeed, productivity is the main force behind our standard of living, which he measures as the inflation-adjusted real compensation per worker. As it increases, so does consumers' purchasing power.

In this environment, Yardeni believes the stock market should easily appreciate 7% to 8% next year, in line with corporate earnings growth. There is, however, a good chance that it could do even better. If price/earnings multiples expand just 1%, which he thinks is a possibility as concerns over inflation decrease and investors conclude the Fed is near the end of its tightening cycle, then the major indexes should climb at least 10%. His year-end target for the S&P 500 is 1410; for the Dow Jones Industrial Average it's 12000, slightly higher than the Dow's all-time high of 11723 set on Jan. 14, 2000.

The one thing that could throw the market for a loop is geopolitics. Yardeni recommends watching for news on North Korea's and Iran's nuclear programs. Investor confidence could be tested if those situations come to a head in 2006. And, of course, a major terrorist attack is always a risk.

So where should investors park their money next year? One of Yardeni's major investment themes is that globalization should continue to boost international commerce and prosperity — especially as the markets continue to be more integrated as free trade spreads.

If you agree with Yardeni's global theme, then you'll want to overweight the energy sector. "Prosperous people need more gasoline to get from point A to point B," he says. Within the energy sector, he likes oil and gas drilling, equipment and services, and exploration and production companies. Energy costs may have peaked, but at $55 to $65 a barrel, he says, oil prices are still high enough for these companies to turn handsome profits.

As people prosper, travel will increase, which Yardeni says will boost the need for more commercial aircraft. So too will commerce increase, which will lift demand for cargo planes. Already the long-term outlook for commercial aircraft demand is outstanding as Asian and Middle Eastern airlines expand and as air freight increases along with global trade, he says. Current aircraft backlogs suggest the good times could continue through the end of the decade.

Within the financial sector, Yardeni likes investment banks and asset managers. As international companies evaluate their businesses, management will look to sell off divisions that aren't profitable. This should be a boon for globe-trotting bankers. And now that people around the world are accumulating more wealth, they'll need banks to help them manage mounting assets.

Yardeni also favors some areas of health care. While he would avoid the troubled pharmaceutical makers, he likes biotechnology, managed health care, health-care services and health-care supplies. These industries are the clear winners now that a record 21% of total consumer spending goes toward medical goods and services.

What to avoid next year? Stay away from any business that's challenged by new technologies, especially the advertising, media and broadcasting industries. They're now competing with telecommunications, cable and Internet companies. While there's likely to be some consolidation in the affected industries, it's a tough investment game to play, Yardeni says.

If Yardeni's right, then there are lots of reasons for investors to look forward to next year. The key is to stay focused and buy into the groups that are well-positioned to benefit from global growth.

We established the US Condo Exchange, www.uscondex.com , to make it faster easier and cheaper to search, compare, buy and sell condos.

Last year there were 1 million condo transactions creating a market of approximately $200 bn. These numbers is expected to continue to increase over the next decade.

While there is a speculative component to the current condo market, it is important to remember that the majority of condo transactions are closed by participants seeking to sell or acquire a home. The fanatic search for a "boom" or a "bust" is akin to examining a bottle of champagne by the froth onthe glass as it is poured.

Real estate has been the hottest asset class over the past five years. Some locales have seen prices double in two or three years and news of investors flipping condos reminds me of the frenzied days of Internet IPOs in the late 1990s.

But with the latest rise in mortgage rates there's been an unmistakable shift in sentiment. Recent data from the research firm ISI shows that the dollar value of unsold homes in the U.S. has now surpassed $500 billion, up an unprecedented 33 percent from a year ago.

SACRAMENTO, Calif. -- One of the nation's hottest housing markets is showing fresh signs of weakness as sales slow, prices fall and more buyers cancel new home purchases. Experts don't know how much the Sacramento area market will soften, but many suspect the recent chill is more than just a seasonal lull. And the region's housing troubles appear to be worse than in most parts of California. "At the moment it is one of the weakest in the state," said economist G.U. Krueger of Irvine consulting firm Institutional Housing Partners. "I can't see anything that's weaker." Most experts don't expect the Sacramento market to crash. Instead, many predict a soft landing in which prices stagnate or drop slightly for a while, then rise modestly over the next two years.

But the epic housing boom that generated wealth, created jobs and propped up an otherwise lackluster economy appears to be over. In the Sacramento resale market, sales volume dropped nearly 20 percent in October from a year ago, according to DataQuick Information Systems. The median price of a resale home in Sacramento County slipped 2 percent to $363,000 in October from $372,000 in August. Resale prices are still about 17 percent higher than a year ago, but until recently, homeowners enjoyed year-to-year gains of 25 percent, among the country's highest appreciate rates. Real estate agents are now seeing the largest inventory of unsold homes in a decade, with the number of "For Sale" signs doubling in the past six months. Cancellations of new-home purchases soared 260 percent in the third quarter over last year, according to Hanley Wood Market Intelligence. Experts attribute the softening market to a variety of factors. Mortgage rates have risen above 6 percent, while banks are tightening their lending standards, especially on the riskier types of loans that helped fuel the boom. Bay Area residents aren't buying Sacramento properties as quickly because it's taking them longer to sell their existing homes, said analyst Greg Paquin of the Gregory Group in Folsom. Investors who believe the market has peaked are cashing out and buying in cheaper markets in the Midwest and South. Economists worry that the economic effects of the housing slowdown will be felt across California. "It definitely worries me," said UCLA economist Ryan Ratcliff.

6.73%-Sell anytime after one year -Keep as long as 30 year-$30.000 per SS# per calendar year-Tax defered until cashed-Variable rate changes on inflation numbers every 6 mos.-2 mo. penalty for selling before --5yr. still nets better than CD at one year sell.

Last year there were 1 million condo transactions creating a market of approximately $200 bn. These numbers is expected to continue to increase over the next decade.

While there is a speculative component to the current condo market, it is important to remember that the majority of condo transactions are closed by participants seeking to sell or acquire a home. The fanatic search for a "boom" or a "bust" is akin to examining a bottle of champagne by the froth onthe glass as it is poured.

Reply to Dear Mr. Condo

I would suppose you have not gone through a "Condo Bust" in your career. There have many periods in the market where half finished condo projects went unsold for many years. I toured the West coast of Florida in the 80's only to see dozens of high rise condo buildings on the water empty and the builder couldn't give them away.. Ditto in Houston......It took many years for the market to return........this one will be worse!

I rent a 2 bedroom condo for $1500 in a neighborhood where the median(per CAR) home price is $1.1M. The 2 bedroom condo across the alley from mine is on the market and vacant priced at $439K. Last summer they were priced at $479K but several have been vacant for months and prices are now dropping, even in the extreme low end. On the AVERAGE side, a house near what is actually the high end for existing homes was priced at $989K last summer and still sits, now reduced to 939k. The "median" reflects new inventory that has come on at well over $2M and sold to people who don't really need to worry about losing their shirts. CAR and NAR seems to be publishing data very selectively to mitigate evidence of actual price drops that are happening now in Southern California. I am aware of several others who, like me, cashed out in the past year, and will rent until something in California once again cash flows. The clear absence of common sense indicates a classic mania. I worked in the mortgage industry for a few years until earlier this year and saw how full of speculative loans the major CA lender's portfolio was. This is not just going to be an implosion, but the mother of all implosions. It will cost homeowners far more than the 2000 internet stock bubble collapse and it will result in a big taxpayer bailout of the reinsurance industries and GSEs that could rival the S&L bailout (it cost us more in inflation adjusted dollars than World War II, but most have forgoten about it in our Britney-centric times). There will be massive restructuring of mortgage finance. My advice is not to try to catch a falling knife but get back in if possible after the number of CA foreclosures exceeds 50,000 but before the regulatory changes take effect.

xsparta - I wish I could let you talk to a few of my friends. There isn't much on the internet about the Florida condo bust of the 1980s but the local Tampa newspaper did have a "remember when" article earlier this fall.

Too many of my friends were either too young or drank too much and have forgotten about the last bust. We all have front row seats for the current one.

Already starting to get ready for another hurricane season in Florida. Starts in June. Not sure how it will effect my real estate work. Tough business right now. So I enjoy taking a break and seeing what other people are up to. Enjoyed visiting your blog. Visit my site if you have a chance.

Blog-hopping is a habit I am trying to break since my own real estate work requires a lot of attention to detail. Then I run into a blog like yours and I�m reminded about how the internet expands our views positively. Thanks for the read. Visit my site if you have a chance.

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